Following the filing today by Lehman Brothers Holdings Inc. ("Lehman
Brothers”) of a petition under Chapter 11 of
the U.S. Bankruptcy Code, Primus Guaranty, Ltd. (NYSE:PRS) provided the
following information with regards to the credit default swaps ("CDS”)
portfolio of Primus Financial Products, LLC ("Primus
Financial”).
As of September 15, 2008, Primus Financial’s
single-name CDS notional exposure that references Lehman Brothers
totaled $80 million. The company anticipates that, as a result of the
Lehman Brothers bankruptcy credit event, it will have to make cash
settlement payments to its counterparties on these transactions, less
recoveries. Early market indications today of recovery rates on Lehman
Brothers’ debt ranged from 30% to 35%. Primus
Financial also has CDS exposure to Lehman Brothers in its bespoke
tranche portfolios, which are not subject to first loss due to existing
subordination levels. The company does not anticipate that Primus
Financial will have to make cash settlement payments on its bespoke
tranche transactions as a result of the Lehman Brothers bankruptcy.
However, the capital requirements associated with each tranche will
increase as a result of a reduction in tranche subordination.
Primus Financial has also sold CDS protection to Lehman Brothers Special
Financing Inc. ("LBSF”)
in various transactions. LBSF is a subsidiary of Lehman Brothers and it
is our understanding that it did not join the bankruptcy filing. The
mark-to-market value of the CDS contracts sold to LBSF was approximately
$56 million in their favor as of September 12, 2008. Primus Financial
intends to continue the swap contracts to maturity, at which time the
mark-to-market value of the contracts will be zero. Primus Financial’s
willingness to continue the contracts is subject to the continued
payment of premiums by LBSF in respect of these transactions.
About Primus Guaranty
Primus Guaranty, Ltd. is a Bermuda company, with its principal operating
subsidiaries, Primus Financial Products, LLC and Primus Asset
Management, Inc., headquartered in New York City. Primus Financial
Products offers protection against the risk of default on corporate,
sovereign and asset-backed security obligations through the sale of
credit swaps to dealers and banks. As a swap counterparty, Primus
Financial Products is rated Aaa by Moody's Investors Service, Inc. and
AAA by Standard & Poor's Rating Services. Primus Asset Management
provides credit portfolio management services to Primus Financial
Products, and manages private investment vehicles, including two
collateralized loan obligations and three synthetic collateralized swap
obligations for third parties.
Safe Harbor Statement
Some of the statements included in this press release and other
statements Primus Guaranty may make, particularly those anticipating
future financial performance, business prospects, growth and operating
strategies, market performance, valuations and similar matters, are
forward-looking statements that involve a number of assumptions, risks
and uncertainties, which change over time. For those statements, Primus
Guaranty claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995. Any such statements speak only as of the date they are made, and
Primus Guaranty assumes no duty to, and does not undertake to, update
any forward-looking statements. Actual results could differ materially
from those anticipated in forward-looking statements, and future results
could differ materially from historical performance. For a discussion of
the factors that could affect the company's actual results please refer
to the risk factors identified from time to time in the company's SEC
reports, including, but not limited to, Primus Guaranty's Annual Report
on Form 10-K, as filed with the U.S. Securities and Exchange Commission.
